Yellows in peril: the struggle for the soul of liberalism

Nick Clegg and the Lib Dem leadership may be natural allies of the small-state, free-market Tories,

Liberal Democrats and Conservatives sharing power in a coalition at Westminster is not something that many ever expected to see. Although all political parties are broad churches, there is much about the Lib-Con coalition that strains credulity. How can a party that has recently been seen as "left of Labour" on civil liberties, democratic reform, taxation and public services now be engaged so enthusiastically in reducing the size of the state?

While many Liberal Democrats see the coalition as a creature of circumstance, its ideological basis lies in a strain of centre-right, small- state liberalism in the leadership of the Liberal Democrats. This strand of thought is not alien to the party, and for much of the history of the Liberal Party, and then the Liberal Democrats, it has been able to coexist happily with centre-left social liberalism.

There is a tradition of debates on the role of the state in Liberal politics that stretches back to the 1870s, but by the early 20th century, social liberalism was dominant. The thinking of T H Green, L T Hobhouse and J A Hobson influenced a policy platform that, from 1906 onward, would lay the foundations of the welfare state. Notwithstanding some ideological ebb and flow throughout the 20th century, the position of the Liberal Democrats on the centre left was established and coherent by the late 1990s.

Under the leadership of Charles Kennedy, the party sought to reaffirm an identity that had become somewhat blurred during Paddy Ashdown's prolonged but ultimately fruitless flirtation with Labour and Tony Blair. We (I was the Liberal Democrats' director of policy between 1999 and 2004) developed a modern restatement of the social liberalism, called "New Liberalism" in its day, espoused by Hobhouse: social liberalism, greened and decentralised to meet the challenges of the 21st century.

It was based on a principle of individual freedom that had three dimensions: decentralised decision-making; the importance of greater equality; and the belief that future freedoms depended on building sustainability into everything we do. If that appeared to be "left of Labour" (as commentators often said), it was also entirely consistent with social-liberal traditions. As Hobhouse put it, "the struggle for liberty is . . . a struggle for equality". Underpinning this outlook was a strong commitment to state action - albeit action taken by a state fundamentally different from Labour's

Into this mix dropped The Orange Book: Reclaiming Liberalism, published by the think tank Centre Forum in 2004, which contained essays by leading party figures, including Nick Clegg, Vince Cable, Chris Huhne and David Laws. The title was an allusion to the Yellow Book, produced by the Liberal Party research department in 1928, in which economists such as Walter Layton and J M Keynes set out plans for the state to tackle unemployment.

A great deal of simplistic nonsense has been written about The Orange Book, much of which was in line with party orthodoxy. However, in two chapters Laws argued that the Liberal Democrats had too often been supporters of the "nanny state" and that public services needed to be more responsive to people (defined as consumers). Laws advocated the funding of health care by an insurance system. Some of this echoed aspects of New Labour thinking, which says as much about the place of the Labour Party on the political spectrum at the time as it does about the Liberal Democrats.

Many in the party were deeply hostile to The Orange Book; others simply tried to ignore it. A response eventually came in 2007, in the form of Reinventing the State: Social Liberalism for the 21st Century, which I co-edited with Duncan Brack (also a former director of policy) and David Howarth, then the MP for Cambridge. This sought to give a more sophisticated account of internal party divisions, and indeed included chapters from Orange Book-ers such as Nick Clegg and Chris Huhne. It argued that, although there was much wrong with the state, the answer was not to reduce it, but to reform and relocate it, principally by making public services locally and democratically accountable.

This volume sent a signal to those inside the party that social liberals were organising at last. There was already plenty to organise around. At the annual party conference in September 2007, the Liberal Democrats endorsed a plan to drop the long-standing policy of levying a 50p tax rate onincomes over £100,000. Instead, there would be a tax cut of 4p in the basic rate, funded by changes to the tax system as it related to pension contributions, capital gains and pollution.

One of the ways the leadership got this proposal through was by arguing that it would be more redistributive than the old 50p policy. It was, but a valuable symbol of redistribution that could have been combined with the new policy had been sacrificed in the process.

It was with a change of leader at the end of 2007 that the agenda shifted properly. There had been little sign of this in a policy-light leadership contest between Clegg and Huhne, but Clegg, in his first speech as leader, advocated "free schools" under the oversight of local councils, yet not council-controlled. This idea would probably have been badly received had it been put forward in the leadership election and might well have cost Clegg his very narrow victory. In that same speech, he argued that the state should "back off" once essential "building blocks" were in place.

In theory, there was not a great deal in this with which Liberal Democrats could disagree, but at the time some in the party feared a new direction focused on reducing the size of the state, rather than relocating it through devo­lution. In the months that followed, there was some internal dissent over "free schools" and eventually the leadership stopped using the phrase.

In September of the following year, a policy document entitled Make It Happen was presented to the party conference. "We're looking for ways to cut Britain's overall tax burden," it announced, "so ordinary families have more of their money to help themselves." That sounded mild, but a big shift was implied. We already had a policy for tax cuts, funded either by redistributive taxes on the wealthy, or by green taxes. But reducing the overall tax "burden" meant going much further, and funding additional cuts in taxation by reducing the money that the government is able to spend on the things that, it might be argued, are best provided collectively: schools, hospitals, pensions, unemployment benefits, disability allowances, the police and the armed forces.

An amendment opposing the change was defeated by conference representatives, who seemed increasingly loyal to the leadership. Richard Reeves, then director of Demos and now a special adviser to Clegg, argued in the Guardian that "social liberals should join Labour". Reeves was wholly wrong to say of social liberals that our principles were those of Labour rather than the Liberal Democrats. But he did correctly identify a division in the party over the role and extent of the state.

The reaction of an increasingly coherent group of social liberals to the 2008 conference was not to leave, but to organise. We made a successful attempt to get social liberals elected to the party's Federal Policy Committee (FPC), where we were able to defeat an attempt by the leadership to drop the policy of scrapping university tuition fees. We felt this issue to be an important battleground in the debate over the question of the role of the state in delivering public services. Success in FPC elections was followed by the launch of an internal pressure group, the Social Liberal Forum (SLF), to rally social-liberal opinion in a more organised fashion. At the 2009 conference, the SLF mobilised effectively against a further move by the leadership on tuition fees. But then, for nearly a year before the 2010 general election, internal disputes were largely put to one side.

How does this narrative of internal debates help us to understand Liberal Democrat support for the coalition? In the first place, one mustn't underestimate the extent of tribalist Labour opposition to a deal with the Liberal Democrats. John Reid and David Blunkett represent an influential strain of opinion in a party in which many despise "the Liberals". That such figures were queuing up to tell the media that a period of opposition would be best for Labour was a terrible disappointment for Liberal Democrats who were openly calling for a Lib-Lab coalition.

This allowed the Liberal Democrat leadership to argue that the party was getting the best deal it could from the coalition agreement. No one could deny that the Conservatives offered much more than had been imagined. As Polly Toynbee: "There are policies here that Gordon Brown and Alistair Darling adamantly, and wrongly, refused to contemplate, so wedded were they to New Labour's rigid caution, triangulating themselves to death."

That includes not only major constitutional reform, but also a strong green agenda and the sweeping away of Labour legislation that undermined civil liberties. The leadership has been able to claim some success in the Budget, on matters such as capital gains tax, and this has been enough for many in the party.

Political culture helps to explain the party's support for the coalition. The Liberal Democrats have become extremely leadership-loyal. The trauma of losing Charles Kennedy and Menzies Campbell in quick succession should not be underestimated. However narrowly Clegg won, the party was always going to stick with him, and his brilliant personal performance during the election campaign consolidated support for him. The culture of the Liberal Democrats is also in­herently reasonable. There is a willingness to try to see all sides of an argument and a long-standing belief that coalitions are desirable.

Meanwhile, the party is under-factionalised. This is a problem if ever the membership is to stand up to the leadership. Well-organised factions can rapidly mobilise opposition to unpopular policies imposed by the leadership. The Council for Social Democracy, which was able to form the Social Democratic Party within months in 1981, had its origins in the Campaign for Democratic Socialism, and drew on a decades-old Gaitskellite organisational base inside the Labour Party. Two years on from the 2008 tax debate, social liberals were far better organised than they had been, but were still unable to exert significant pressure on the leadership during the coalition negotiations.

What the party still does not seem to recognise, or at least accept as a problem, is that the coalition can be best understood as the preferred option of a leadership grouping that has consistently proposed policies designed to reduce the role of the state and so move a centre-left party steadily rightwards. In the major debates of the past two or three years, the Orange Book tendency has whittled away at broadly centre-left policies on, for example, public spending, income-tax rates and the role of local government in education.

We have a leadership that tends to see the state as a problem, rather than the means of solving problems. Explicitly egalitarian arguments are seldom made, even when the party has a story to tell that includes a redistributive tax policy, as was the case in the 2010 manifesto. Indeed, in his 2009 Demos pamphlet, The Liberal Moment, Clegg dismissed the argument that "an unwillingness to go far enough with redistributive taxes" is part of the explanation of Labour's failure to tackle "social division".

The coalition agreement has allowed the leadership to pursue its zeal for cutting public spending. It does this having explicitly ruled out major cuts in 2010-2011 during the election campaign, and having opposed the scale and timing of the cuts now introduced by the government. The case for that rests on the assumption that there is "no alternative", which is at odds with the views of many leading economists. Such matters always rest on judgement - we must all accept that. But judgements reflect values, and the decisions made by this government about Treasury policy throw its small-state, centre-right ideology into stark relief.

What does this mean for the future of social liberalism? Most social liberals in the Liberal Democrats are backing the coalition for some or all of the reasons stated above, and possibly for other reasons. It is possible that others will simply drift away from the party. But they do not seem to be flocking to Labour. The most prominent defectors have been two councillors in Exeter and one in Hull. For Liberal Democrats, there are many barriers to joining Labour. With its ongoing leadership contest, the party's direction is unclear.

This is not to deny, however, that there are many in the Labour Party with whom Liberal Democrats can find common ground. For instance, Jon Cruddas's 2009 lecture "The Future of Social Democracy" sets out an agenda that appeals to many Liberal Democrats, even though his outlook is far from the dominant one inside Labour. In the long term, the Liberal Democrat entry into the coalition may create the conditions for a further realignment on the centre left of British politics, especially if the Liberal Democrats become inextricably identified with a small-state ideology; but Labour has to change significantly before that can happen.

In the meantime, Liberal Democrats who are concerned about the coalition will stick with the party and wait to see how the situation develops. There is a long tradition of this tactic in British politics: those who stayed with Labour despite Iraq, the abolition of the 10p tax rate, crackdowns on civil liberties, tuition fees and much else can testify to that. Parties often lose their way, and members frequently sit tight in the hope that they can find their way back.

It is clear that a social-liberal agenda remains, and that there are many areas where the coalition agreement is woefully inadequate. At the top of that agenda is democratic localism, which advocates strong local government taking big decisions on public services in response to local demand and in order to drive up standards. It is joined by the struggle for equality after a Budget that takes a higher proportion of income from the poorest than from the richest.

In developing ideas, social liberals should be arguing for a new political economy that puts issues of power in the workplace and the ownership of assets back on the political agenda in the way that the old Liberal Party once did. There is, too, the issue of sustainability, on which the coalition deal probably gave the Liberal Democrats the most, and where the party undoubtedly has a strong team in government. But far more ambitious plans than those contained in the coalition agreement are needed to tackle runaway climate change.

Meanwhile, social liberals have an opportunity to lead debates in areas where the left has been too timid. They should look to challenge the free-market orthodoxies that led to the current crisis, and which leave people enslaved in an economy where materialism dictates ever longer hours worked in order that people can acquire more "stuff", even though it doesn't make them any happier. These fundamental problems with the economy and with lifestyles remain unaddressed by the coalition. And perhaps we can also start to be more aware of the persistence of social class in this country, where political leaders are drawn from a narrow social elite and where birth cohort evidence shows that parental background has a huge influence on academic attainment, health and labour-market opportunities.

If the Liberal Democrats can ensure that their party structures operate so as to allow a clear voice to come through, they have every chance of putting forward a distinctive manifesto at the next election - one that will, in all likelihood, put it closer to a reformed Labour Party, should the Alternative Vote deliver another hung parliament. Or, they can be happy with morsels from the Conservative table and be gratified from time to time, even ecstatic, to see bits of Liberal Democrat policy implemented. But if they take that approach, the party will become as hollowed out as Labour did under Blair and Brown.

Richard Grayson is head of politics at Goldsmiths, University of London. He is one of three vice-chairs of the Liberal Democrat Federal Policy Committee, but writes here in a personal capacity.